Finance Committee on Dec. 11th, 2020

[The Chair, Liberal, Wayne Easter]

I call the meeting to order.

Welcome to meeting number 13 of the House of Commons Standing Committee on Finance. We are meeting, as everyone knows by now, for our pre-budget consultations in advance of the 2021 budget.

Today's meeting is taking place in a hybrid format, pursuant to the House order of September 23. The proceedings will be made available via the House of Commons website. Just so that you are aware, the webcast will always show the person speaking rather than the entire committee. Also, to make things smoother, if people could put their mike on mute when others are speaking, it's much easier for interpretation.

We do have a little bit of committee business to do before we start with our witnesses.

It is nice that Gabriel Ste-Marie is joining us after spending so long sitting in the big chair in the House of Commons. It's good to see him come down to earth with the rest of us. You did a very good job, Gabriel.

Members have seen a copy of the budget for pre-budget consultations in the amount of $9,150. Could we have a motion to basically authorize the expenditure of $9,150 for pre-budget consultations in advance of the 2021 budget?

Go ahead, Peter.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I have a question. Is this for expenses that we have already undertaken?

[The Chair, Liberal, Wayne Easter]

Yes, including for today.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Okay. As we discussed, Mr. Chair, given the absence of an agreement, this is the last meeting of the finance committee this year, so I certainly move a motion for expenses that we've already undertaken.

[The Chair, Liberal, Wayne Easter]

All right. It is so moved.

Is there any opposition to it?

(Motion agreed to)

Now we'll turn to our first panel this afternoon. First of all, I want to thank all the witnesses for coming. We're in a different environment with virtual meetings. Keep your remarks to roughly five minutes, please.

On deck, as an individual, is Mr. Di Matteo. The floor is yours.

[Livio Di Matteo, Professor of Economics, Department of Economics, Lakehead University, As an Individual]

Thank you, Mr. Chair.

Good afternoon. Thank you for the invitation to speak at these pre-budget consultations in advance of the 2021 budget. I commend the committee for reaching out to the academic community of economists for public input on this important process.

It's been said many times that the COVID-19 pandemic is an unprecedented event in recent history, and this context frames my input into this process.

The fall 2020 economic statement documented the unprecedented effects of and response to the COVID-19 pandemic. For fiscal year 2020-21, real per capita revenues have declined by 20% from the previous year, while spending is up by 70%. In real terms, this is the highest per capita amount ever spent in Canadian fiscal history—nearly $16,000. As a share of GDP, the projected deficits will be the second-largest in Canadian fiscal history, exceeded only by those during World War II.

The fall statement reveals that spending will eventually decline and the deficit approach 1% of GDP by 2025-26, but also a federal net debt that will rise to $1.5 trillion and a net debt-to-GDP ratio remaining in excess of 50%. Despite current low interest rates making current debt management look manageable, it remains the case that any sudden future shocks to the economy or to interest rates could be more difficult to manage as debt burdens rise.

The size of the initial fiscal response to the onset of the pandemic in the February-to-April period of 2020 was appropriate. However, the continuing, unprecedented fiscal response generated results that have not paralleled the fiscal support provided. The fiscal assertiveness of the federal response to the pandemic was not matched by assertiveness in targeting the response as might have been afforded under federal spending power or the power of quarantine that exists under the Constitution. Moreover, much of the spending went toward individual income transfers in excess of the pandemic-generated income losses. After all of this unprecedented response, we are now in the midst of a more severe second wave that threatens the economic recovery that began over the summer.

The federal 2021 budget must learn from the past and better target any additional projected fiscal response with a view to long-term economic recovery and growth. The additional spending must be directed towards productivity-boosting investment. Even prior to the pandemic, the business investment-to-GDP ratio had been faltering. While the short-term income support provided at the peak of the pandemic was important, if we are to continue to spend at these record levels, there must be more to show for it.

Government spending priorities should be directed towards initiatives for boosting our long-term productivity via investment in physical and human infrastructure. Public infrastructure in roads and transport; bridges; communications; schools; health care; water, sewer and environmental systems all require investment. Education has taken a major blow during the pandemic, and we need to ensure that students at the elementary, secondary and post-secondary levels do not fall behind in educational achievement and opportunities and reduce future labour productivity growth.

Then there is the matter of our national defence and security in a more multipolar and unstable world that requires equipment and resources and vision.

There is also a need for private sector investment in sectors producing goods and services that we can export so that we can continue to earn our way in the world. If our export markets falter and our incomes drop, there will be no international emergency response benefit payments offered to us. The federal government, therefore, should work with the private sector in assessing its investment needs.

Historically, excessively large amounts of government spending are not well correlated with long-term economic growth. It's not that government cannot help the economy, but that effective government requires knowing when to spend and when not to spend and, more importantly, what to spend the money on.

If we are to embark on a program of infrastructure spending, we must ensure that projects with the best return are selected. Assorted public projects should be assessed by an arm's length panel of key leaders with expertise in business, accounting, engineering and economics who can make recommendations in areas of national interest. It would be extremely unfortunate if federal infrastructure money flowed to community or sports centres rather than, say, roads and sewers, simply because shovel-ready plans exist for the former and not the latter.

Thank you very much for the opportunity to speak to you all, and I look forward to the discussion.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Di Matteo.

We're turning now to the Canadian Chamber of Commerce.

Mr. Stratton, the floor is yours.

[Dr. Trevin Stratton, Chief Economist and Vice-President, Policy, Canadian Chamber of Commerce]

Thank you, Mr. Chair and members of the committee. It's a pleasure to be here virtually today.

In the middle of a once-in-a-century pandemic and a second wave, it is difficult to think beyond confronting the immediate effects of COVID-19. However, even as we continue supporting each other today, we must also begin looking over the horizon to the post-COVID-19 world. We need to start planning how our country and our economy can emerge stronger.

Full recovery is a long way off, but recovery starts with resilience. The emergency supports provided have spared many Canadian businesses from economic disaster, and will help many Canadians through a challenging winter. Measures like the Canada emergency wage subsidy and the Canada emergency business account have provided urgently needed assistance to Canadian workers and businesses, helping to ensure that they will be there to propel our economic recovery. However, these pandemic-related fiscal supports have come at an enormous cost that's estimated at over a quarter of a trillion dollars so far. Their cost will continue to mount for the coming months and beyond. The burden of carrying the cost will be borne by an economic infrastructure that has been badly damaged.

As we prepare for a significant majority of Canadians to be vaccinated, Canada must also prepare for a transition away from a subsidy-based crisis response toward economic stimulus and getting Canadians back to work while ensuring their health and safety. All Canadians understand the need for one-time emergency spending to support people and businesses through the crisis, but now is not the time to add permanent new spending programs that will mortgage the future of the next generation of Canadians by creating structural deficits. We will need to encourage investment and business activities that will create jobs and generate the revenue needed to offset the extraordinarily high levels of public spending during the emergency.

This will be no easy task. Over the coming months and years, our international competitors will be fixated on attracting investment and creating jobs. For Canada's recovery plan to succeed, our policy-makers will need a singular focus on economic fundamentals and promoting growth. Governments must be as agile and determined in pursuing economic growth as they have been in responding to the virus.

The recommendations in our pre-budget submission were developed in partnership with our vast network of over 450 chambers of commerce and boards of trade and more than 100 of Canada's business associations. The submission lays out eight policy areas and specific measures that our political leaders must consider to ensure a sharp and lasting recovery.

Almost 600,000 Canadians are still unemployed due to the pandemic. Priority number one needs to be to get them back to work to drive our recovery. This will require getting local labour market data on what skills employers are demanding and developing talent pipelines with educational institutions at the community level to fill these needs.

At the same time, the latest data show that there are also 70,000 fewer businesses in Canada than there were pre-pandemic. Creating the significant amount of business openings and reopenings that will be necessary for recovery will also require a focus on harnessing our tax system for growth—for example, a temporary consumption tax holiday to spur local purchases, or pausing the alcohol escalator tax. It will also require adopting technology and innovation, strengthening supply chain resiliency, reducing regulatory burdens, ensuring a resilient resource sector, planning for small business continuity and strengthening public health infrastructure.

We ask the government to work closely with the business community in developing a road map for a business-led recovery. A growth-focused plan with a clear fiscal anchor based on broad consultation will unlock economic capacity, fuel job creation and promote new business investment. By working together, we can forge a path to recovery that is inclusive, environmentally responsible and innovative.

Just as every downturn is first felt on main street when the lights begin to go out, every recovery starts when the open signs begin to reappear. For all the uncertainty about what to do, we know one thing for sure: The true measure of every recovery is job growth, and everyone recovers when business recovers.

Thank you for the opportunity to meet with you this afternoon. I look forward to our discussion.

[The Chair, Liberal, Wayne Easter]

Thank you very much. Thank you as well for your submission prior to the middle of August. All of those recommendations will be considered as well.

We'll turn now to the Fitness Industry Council of Canada and Mr. Wildeman, president.

Thank you, Mr. Wildeman, for coming before the committee on very, very, very short notice.

The floor is yours.

[Scott Wildeman, President, Fitness Industry Council of Canada]

Thank you. I really appreciate the opportunity. This is definitely something that I would make time for.

The fitness industry has been decimated by the COVID-19 closures and restrictions. Just to give context, currently facilities that are open are operating at approximately 50% of pre-COVID revenue. Facilities that are closed are operating at less than 10% revenues, yet we still have significant fixed-cost spaces.

On behalf of our members, we appreciate the CEWS and the rent support. Many of the caps that were in place have been lifted. Companies are still experiencing hardships with remaining rent, wages, small business loans and property taxes, along with the debts incurred from securing PPE and enhanced cleaning and safety measures.

However, our operators across the country are looking to the future. We're looking to do our part for the collective health and wellness of Canadians. Today, I am here to speak to you about how our industry can be part of the solution to help Canadians be well and thus be productive.

We know that exercise has many health benefits, which are well documented and researched through organizations such as Exercise is Medicine Canada. We know that physical activity and exercise will reduce hypertension by 33% to 60%, reduce incidence of diabetes by 25% to 58%, reduce incidence of cardiovascular disease by 33% to 50%, reduce risk of stroke by 31% to 45%, reduce risk of some cancers by 30% to 60%, reduce mortality and risk of recurrent breast cancer by 25% to 50%, reduce the risk of developing Alzheimer's by 40% and reduce premature death by 31% to 65%. It can reduce the risk of anxiety and depression, and can actually treat anxiety and depression as effectively as medication or cognitive behavioural therapy.

We know that COVID-19 complications have been largely associated with folks who have one or more chronic condition. We know there's a coming tsunami of anxiety and depression, especially as the recent lockdowns are occurring during the shortest and darkest days and effectively cancelling the holiday season for many households.

How can we part of the solution?

As an industry, we would like to partner with government and provide the following.

First, include fitness memberships and fitness services such as personal training as a health care expense. We have the ability as an industry to provide attendance reports upon request for audit purposes and also show attendance for remote services. Professionals across the country are ready, willing and able to provide both in-person or remote services focusing on long-lasting behaviour change.

We would also like to request that PHAC back funding to expand the Prescription to Get Active program across Canada. This program is unique in that it links prescribers from the medical community to fitness professionals.

We would also like to encourage government messaging that encourages Canadians to seek out professional assistance to create lasting behavioural change with their physical activity.

We believe that we can provide the government with a 500% return on investment by reducing the overall health care burden by motivating and inspiring Canadians to take proactive steps towards their own health and wellness.

I really appreciate your time today. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much and thanks again for coming. There are lot of good points there.

Now we'll turn to the Northwest Territories Association of Communities. We have Lynn Napier, mayor of Fort Smith.

Welcome, Madam Mayor. The floor is yours.

[Lynn Napier, Mayor of Fort Smith, Northwest Territories Association of Communities]

Thank you, Mr. Chair.

Thank you so much for the opportunity to present to all of you as part of the pre-consultation for budget 2021.

I am Lynn Napier, mayor of the town of Fort Smith and president of the Northwest Territories Association of Communities. We proudly represent all 33 communities in the Northwest Territories, which vary in size from 52 to 21,000 residents. Our members are both indigenous communities and traditional municipalities, but all are northern and remote to varying degrees.

As you know, local governments are relied upon to keep essential services running. We are the level of government that most immediately impacts on residents' lives, and I would like to remind you that municipalities cannot legally carry a deficit.

We have really appreciated the first round of safe restart funds. To get this funding out the door as quickly as possible, we worked with the territorial government to have it distributed on an allocation base-plus basis.

With respect to planning for the critical economic stimulus recovery phase, I am pleased to let you know that local governments are agile enough to be important partners. Further, these funds could serve to make headway on the four pillars that I would like to highlight for you as priorities for NWT communities.

Being a jurisdiction, where the lack of infrastructure is readily acknowledged, our first pillar is infrastructure funding. It has been very heartening to see additional funding being allocated to municipal infrastructure in the last few federal budgets. The doubling of the gas tax fund was particularly welcome. We would strongly encourage this to continue and to become permanent and to be enhanced.

The gas tax fund works very well in the territorial north, because of its flexibility and predictability, and because it does not require cost-sharing. Getting funds to community governments is one of the most efficient ways to stimulate the economy in a timely and effective manner and thus make the most effective impact on the recovery from COVID-19. Further, it serves to address long-standing challenges and gaps.

As well, programs that encourage the development of territorial projects that will facilitate trade and resource development, such as the Mackenzie Valley Highway, will have significant impacts on economic development, as well as increasing the resilience of communities to climate change that are on the route, which nicely segues into our second pillar—climate change.

In the Northwest Territories, climate change isn't a distant, abstract problem. It's here now, and Northwest Territories communities are at the forefront of the climate change challenge.

The rapid warming, at two to four times the rate of the rest of Canada, is causing significant changes in the natural environment, including to ice, permafrost, water, vegetation and wildlife. The frequency and severity of extreme weather events is also increasing.

Although there are some funds for climate change adaptation that are available in the Northwest Territories, they are chronically over-subscribed and are at a scale to only support studies and/or design. We need to see funding at levels to support construction now.

Our third pillar is actually not a community government responsibility but impacts greatly on the wellness of our communities. With well in excess of 50% of housing overcrowded and insufficient, the likelihood of a rapid spread of COVID-19 in our communities is high.

The Northwest Territories Housing Corporation routinely reports waiting lists for housing units in excess of 400 applicants. Although some progress has been made on this front with the rapid housing initiative, increased investments are still required. Making inroads on the housing deficit in the territory represents a huge economic stimulus, as it has potential to leave more of the benefit and create employment within the communities.

Our final pillar is telecommunications. The many months of COVID-19 have really highlighted the inadequate broadband connectivity in our communities and proven to be a barrier for governance, education, work from home, telehealth and participation in the digital economy on an unprecedented level.

Access to broadband Internet has become essential to living in the modern world, and the lack of access or bandwidth limitations in the north has long been identified as an impediment to the growth of our communities and the Northwest Territories as a whole. Having all telecommunication systems offline for days at a time is unacceptable today, and yet it is a fairly common occurrence in the north.

We were very pleased to hear of significant funding through the CRTC to improve Internet service through the use of fibre and low-earth orbit satellites, but we still have a ways to go.

While considerable improvements have been made to ensure there is cell service for all Northwest Territories communities, there is still considerable vulnerability for the driving public, as there is no cell service between communities—distances of hundreds of kilometres. This too needs to be addressed.

We wish to thank you for the invitation to present to you this afternoon. We appreciate your continued interest in the communities of the Northwest Territories.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thanks very much, Madam Mayor.

We will now go to six-minute rounds of questions, and my apologies for not giving people a heads-up.

Mr. Kelly and Ms. Jansen will split the first six minutes; Mr. McLeod and Ms. Dzerowicz will split the next six minutes; and then we will go to Mr. Ste-Marie and Mr. Julian.

Mr. Kelly, the floor is yours.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

My first question is for the Canadian Chamber of Commerce.

You talked about a lot of different things that are going to be necessary for economic recovery. I want you to comment on some of the tax increases that are going to be felt especially by small and medium-sized businesses.

Perhaps you can start with the excise escalator in particular, which automatically kicks in. Would you perhaps recommend to this committee that things such as the excise escalator, the increases to the carbon tax and increases to payroll deductions that are borne by businesses be suspended in the name of economic recovery?

[Dr. Trevin Stratton]

Thanks for the question.

I'll start with the alcohol escalator tax, which we do believe should be paused. I'm not sure that I know too many policy experts out there who think it's good tax policy to have a tax that goes up every year in perpetuity without any end in sight, or without a motivation for it, particularly in the middle of the largest economic downturn in almost a century.

That places a significant onerous burden on a number of different businesses, but in particular on some of the hardest hit businesses or the ones in the hardest hit sectors, such as restaurants and bars, or even the arts, for that matter. That is definitely something we have been advocating for very strongly. We believe this should be put on pause before it comes into place I believe next April.

Within this context, we are certainly calling for a number of different tax changes. I know that a number of different business associations have been calling for a comprehensive review for quite a while. I'm not sure if the middle of the pandemic is the best time for a structural review of the tax system. We've been putting that off ourselves.

When it comes to short-term things that governments can do with the tax system to help get us out of this, there are a lot of different options.

In terms of helping individual Canadians, there is simplifying tax filing, so that every Canadian can access their tax benefits, for instance, by automatically filing simple tax returns. As well, enhancing the GST and the HST or low-income credit for all Canadians would be very useful. We certainly appreciated the elimination of the T2200 form for people working from home, as was announced in the fall economic statement. It was a form that employers had to fill out. As well, looking at simplifying the tax on split income rules would be very useful for small businesses within this current context.

We've actually brought together some of the best tax experts in the country to come up with a list of 30 recommendations for what we can do immediately for the tax system. I'd be happy to share that with the clerk of the committee.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

[The Chair, Liberal, Wayne Easter]

Make it a very quick one, Pat.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I'll turn it over to Tamara in a moment, but I think the witness makes a really good point on the extraordinary power of the escalator tax. I think King John himself would blush at having the power to give himself additional revenue each year without a vote in Parliament.

With that, I'll yield to Ms. Jansen.

[The Chair, Liberal, Wayne Easter]

Ms. Jansen, the floor is yours.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Thank you.

Thank you, everybody, for your presentations.

I'd like to ask Professor Di Matteo a question. It seems clear that the Liberals' plan to build back better by investing heavily in their green agenda is not necessarily going to be the magic bullet that they claim.

I know that infrastructure worked in 2008 and 2009 because the Conservative government at the time invested in shovel-ready projects that got money circulating immediately, as opposed to the current plan, which looks to take years to implement, and those are years we don't have to waste.

Wouldn't a made-in-Canada approach focusing on manufacturing goods locally so that Canadians can buy from Canadians, rather than purchase offshore goods, be a wiser approach for instant impact?

[Livio Di Matteo]

That's an interesting point.

I think if you're going to have federal policies targeted at the manufacturing sector or a specific business sector to produce domestically like that, it's very important to work with firms in that sector when designing those policies.

I think if there's going to be potential there, it's important that you find out what potential manufacturers need, what they can do to create the jobs locally and follow through on the plans. You have to consult with the sector first. I'm not saying it can't be done, but a lot of our manufacturing now is already integrated with facilities in the United States in the cross-border relationship. It won't be easily turned on a dime, but there's certainly potential there.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

I have a second question. Well before the pandemic, economic growth was mediocre. Do you think that a recovery plan that focuses on increasing productivity while also aggressively reducing the cost of regulation would be the best path to recovery for Canada rather than the current path we seem to be planning?

[Livio Di Matteo]

I think in the long-term, productivity is everything. That's been said by other economists. You have to be able to boost the ability of your factors of production. I know it sounds like such a cold term, but labour and business productivity have to rise. If they don't, in the long run we're going to have increasing difficulty maintaining our standard of living.

A close eye should be kept on the productivity agenda to make sure that investments enhance that type of productivity.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Thank you.

What are your thoughts regarding the current plan, which seems to focus only on domestic issues and does not pay serious attention to possible pressures that will come from our global neighbours?

[Livio Di Matteo]

Could you specify what you mean by the current plan and global neighbours? Do you mean the economic plan or the...?